UAL warns: Givebacks or bankruptcy

In a sharp reversal from its previous stance, UAL Corp. on Wednesday warned that it may file for bankruptcy this fall unless employees and vendors agree to dramatic wage and cost concessions.

Officials of UAL, the parent of United Airlines, said the concessions are key to gaining approval of a $1.8 billion federally guaranteed loan, which the carrier says is essential to its survival.

The warning comes 10 months after James E. Goodwin, the airline's former chief executive, warned in a letter to employees that the airline would "perish" unless it got its costs under control. United unions demanded Goodwin's ouster after the letter was leaked.

Goodwin's replacement, Jack Creighton, 70, has long maintained that he would not preside over a bankruptcy at United. But he acknowledged Wednesday that unless United lowers its costs, "filing for bankruptcy protection will be the only way we can ensure the company's future and the continued operation of our airline."

United, citing an $875 million debt payment due Dec. 2, said employees, vendors and the holders of the leases on its aircraft have 30 days to come to terms on the cuts it says are needed. Although the carrier has $2.4 billion in cash, it is losing about $4 million a day.

"It's become a soap opera," said Jonathan Schrader, airline analyst for Chicago-based Morningstar Inc. He said that United is turning to a cudgel to get what it has not been able to achieve at the bargaining table with its unions.

For weeks, industry experts have warned that rapidly falling revenue could quickly force Elk Grove Township-based United, whose costs are the second highest in the airline industry, into bankruptcy.

United's warning comes as the U.S. airline industry grapples with a slump caused by last fall's terrorist attacks, the sluggish economy and fierce price competition. US Airways, the nation's seventh-largest carrier, blamed those factors for its Chapter 11 bankruptcy filing on Sunday. It was the fourth airline bankruptcy since the attacks.

Airline schedules never rebounded after the attacks. About 12 percent fewer flights are being operated now than a year ago, when the nation's 10 largest carriers operated more than 17,600 flights daily. U.S. airlines lost $7.2 billion last year and are on track to lose another $5.2 billion this year.

On Tuesday, American Airlines, United, Delta and Northwest said they would cut hundreds of flights from their winter schedules.

Shares of UAL, which plunged 47 percent in two days of trading following US Airways' bankruptcy filing, fell another 10 percent on Wednesday to close at $2.45, down 29 cents.

Creighton's efforts to achieve further wage cuts could prove to be difficult.

Union softens position

The International Association of Machinists and Aerospace Workers, which represents about half of the airline's 75,000 employees, has said repeatedly that it would not give up more money, noting its members loaned $500 million to the airline by agreeing to delay retroactive salary payments until 2003 and 2004.

The union's stance softened Wednesday, however, when it said it is willing to discuss possible cuts but reiterated that the airline has yet to "respond to cost-cutting suggestions from front-line employees."

So far, only United's white-collar workers have agreed to a wage cut. Their pay will be trimmed 5 percent if the airline's pilots agree to a 10 percent cut over three years. Pilots are to begin voting on the 10 percent cut next week.

But Creighton, in a message to employees this week, indicated that may not be enough. He said the Air Transportation Stabilization Board, which will decide on the loan request, has told United that the cost cuts must be "broader and deeper."

The loan board appears to have locked into the seven-year concession plans proposed by America West Airlines, which received a $380 million guaranteed loan this year, and US Airways, which has received provisional approval for a $900 million guaranteed loan.

"It doesn't have to be identical to US Airways," said Joe Hopkins, a spokesman for United. "It has to amount to a certain level to be appealing to them."

Joseph Schwieterman, an aviation expert with DePaul University and the director of its Chaddick Institute, said labor would be wrong to dismiss the airline's warning.

"United sees [through its reservation system] that this fall will show a massive flow of red ink that could render the company insolvent," he said.

An industry sea change

Creighton said the airline now agrees that it will have to dramatically change its business plan, as American Airlines did on Tuesday.

"The world has changed. Revenue isn't coming back. Demand isn't returning," he said. "The changes we need to make are urgent, significant and immediate."

Unions are slated to begin meeting with United officials next week to discuss the cuts.

Other analysts said United's announcement is just another negotiating ploy.

"There is nothing fundamentally wrong with UAL," said Michael Boyd, president of the Boyd Group in Evergreen, Colo., an airline consulting group. "Without clear direction, the deeper into difficulty they are going to get."

Creighton insisted the carrier is trying to regain its footing.

"Whatever course we take, we have one message for customers: Our recovery efforts are about the long-term health of United Airlines," he said.